This journal is written by Simon Ward, Henderson's chief economist. Simon comments on economic and market developments from a monetary perspective. We hope you find the content interesting and welcome comments or questions.

Speculators in US Treasury futures have a poor timing record and last week went long, suggesting a rebound in yields.

The chart aggregates the positions of “non-commercial” investors in four Treasury futures contracts using duration-based weights. Examples of recent poor timing include: 1) a large long position in October 2010 – yields subsequently surged; 2) a large short position in early 2011 – yields subsequently collapsed; and 3) another large short position in March this year ahead of the recent yield decline.

The poor record reflects trend-following behaviour – more precisely, a tendency to invest in trends when they are at a late stage. Speculators are occasionally “bailed out” by events that cause an established trend to extend – a long position adopted in the second half of 2007, for example, benefited from the unfolding financial crisis. Such events, however, need to surprise – current Eurozone woes, presumably, are well-discounted.

Another possible contrarian signal is the swelling consensus that the US bond market is “turning Japanese”, i.e. low nominal yields reflect deflationary excess private saving. Current negative real yields, however, have no parallel in recent Japanese experience and are more plausibly the product of “financial repression” – Federal Reserve imposition of zero interest rates and effective deficit monetisation.

Comment Moderation Enabled
Your comment will not appear until it has been cleared by a website editor.

Disclaimer

Figures are amalgamated from various sources and represent a snapshot of the market at the time of writing. They may have changed since and should not be relied upon for any investment decisions. Please confirm figures at source, which may include FT.com, Bloomberg, Lipper and central bank figures.

The opinions expressed here represent analysis by a Henderson Global Investors representative at the time of preparation and should not be interpreted as investment advice, or as Henderson Global Investors’ official view. Henderson Global Investors is not authorised to give investment advice and only provides information on Henderson Global Investors products.

This website is intended solely for the use of professionals, defined as Eligible Counterparties or Professional Clients, and is not for general public distribution. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.